Currencies

[thepennyking]

It's The Depression, Moron...

Borrowing and slightly twisting a quote from a past and somewhat colorful character from American history, “It’s the depression, moron…” True – Arkansas Billy said “It’s the economy, stupid”, but, in the end, his point is still exactly the same. In fact, Bill Clinton’s logic and powerful insight into all-things-political was so on the mark, so profound and so accurate that he stole a presidency on the sheer weight of its prevailing simplicity.

Regardless of what you may personally think about Clinton, he was, in fact, right. He was right for the moment and the deep wisdom in his little quip stands unchallenged today. The upcoming election will be determined by many confluent political forces, but none so powerful as the economy. The wit and wisdom of this single testimonial by our former Chief Executive will turn out to be his long sought after place in history just because of the sheer power of its truth.

By 2004, based solely upon the utter brilliance of this profound precision of thought, we all should have been thoroughly tutored by those four little words that comprise the bulk of the Clintonian legacy. So much so that if any American has not figured it out yet, then they have simply not been listening. Or they have been so distracted by the DNA on the blue dress that have not had the presence of mind to stop their moralistic yammering, listen and finally admit that Bill got it right at least once. It has become such an indelible fact of our culture that if anyone had not learned it by now, then they are truly, well, ...a moron.

Bill Clinton and I will agree that he was correct then about his single economic truth and he remains so today. However, at this juncture, our understanding of the meaning of the economy, moron, radically diverges. You see, Bill was talking about the economy of right now. But the real economy of the nation is not right now, it has never been, not even in the so-called new paradigm. The true economy is based on tomorrow. It is future based, future oriented and future mortgaged in every single respect. Hence, to truly understand the economy that is right at or doorstep and what it is doing, we need to see where it is actually headed.

The truth is, fellow morons, the Emperor of the economy is, at this very moment, butt naked. He sold his clothing, all of it. He had to. And there he stands out on Wall Street, grinning and flashing his wares to everyone who wants to actually open their eyes and see. But the Emperor has managed to print up enough money and pass it around to an army of people who can speak the contemporary financial vernacular. Working together, this vast sea of conflicted financial professionals have managed to convince an entire population of reasonably intelligent, public school educated, neo-Darwinian evolved humans that this economy that our former President referenced is robust and ready to roll onto new decades of boom and bubble.

http://www.usatoday.com/money/economy/2004-03-29-survey_x.htm

The fact is, winter is coming and the Emperor is about to freeze his exposed rear off. The unmistakable signs are all around us, including ice crystals forming on both red cheeks. We are being systematically lied to by the army of economic prevaricators bought and paid for by the ones who will lose their political and economic shirts and perhaps hung in public ceremonies if (when) the populace ever finds out they have been purposefully duped.

This jolly troop of lying jesters have watched so much football that they have learned to ply their trade like a football coach on ESPN. With a carefully constructed language that stems from a short dictionary of less than 100 actual words, they have learned by proper chained-link-lingo-speak to convince the population that today’s game is somehow unconnected to the end game or even rest of the season. Or, that today’s economy is somehow unlinked to tomorrow’s sheer fiscal realities.

They are all lying and they all know it. They are successfully convincing the population that the Emperor’s clothing is exquisite because if they fail, they all will be trading in their six-digit paychecks for a victory garden planted in 5-gallon buckets on their Manhattan terraces.

What does the economy have in store, right around the corner?

The truth is, a planetary wide economic depression is right at our doorstep.

A hush settles over the normally jubilant crowd of economic revelers - the news is received as undisguised sacrilege by all...

It will be a depression so profound and so deep that there has never been one in history that has ever rivaled it before. And it is only a matter of time. Indeed, the financial disaster itself has already happened, its effects are simply delayed, waiting for the creditors bills to hit the mailboxes. The party is over. We have spent the money. The plastic won’t swipe anymore and the clerk is giving us funny looks. Now we have to pay the bills. Unfortunately, we don't have that kind of money and we don't make that much money. Our creditors will not be amused when they find this out.

There is much denial here, obviously. The worst disaster that can ever befall a culture based on capitalism is economic depression. It is such an unmitigated disaster that we have done an historically masterful job at totally denying its reality. We have passed laws against it (National Industrial Recovery Act of 1933 and the The Social Security Act of 1935). We have renamed it (severe economic downturn). We have successfully delayed it (lowering interest rates and printing up money simultaneously). We have convinced ourselves it is acceptable to borrow against it – even though that makes its ultimate effects even worse (relaxing credit and actively encouraging a refinance mania in the face of a mounting immoral deficit). And we have finally managed to jargon ourselves around it. The whole happy parade is led by Wall Street talking heads who are, in fact, nearly all paid lackeys of firms that make their money on a robust market (manufactured or not) and plenty of gullible investors that suck up their every confident word and literally bet the farm on charged and/or refinanced laptops.

Depression is inevitable because of the historic and mind-boggling debt, because of the total lack of fiscal integrity, restraint and control of the government and because everyone has lied to so many people for so long, no one knows the truth anymore and certainly no one believes anyone else, particularly about the new paradigm economy of instant gratification. Our culture is propped up on toothpicks and our in-basket is loaded down with tons and tons of debt, all of it about to be called in. In case you have not heard, there are funny popping sounds emanating from just beneath where we are all comfortably seated enjoying our lattes and cappuccinos at our favorite hi-tech computer bars.

I am fairly certain that Alan Greenspan probably knows what is ultimately coming down. Regardless of what his detractors may say about him, Greenspan is truly an economic genius and has masterfully delayed disaster and using tricks of monetary manipulation that should win him some historic prize one day, many generations from now. Unfortunately, his genius will probably end up turning against him while he lives. He has not saved us from depression, he has only staved it off and ultimately, made it worse. When the coming depression happens, it will almost certainly be pinned on him and, almost without question named after him! Why? Because the rest of the jolly liars will need a scapegoat, and it will either happen on his watch or shortly thereafter. One day sooner than later, Greenspan (if he is as smart as I believe him to be) will simply disappear, leaving them and the freezing Emperor of the economy standing out on the street all alone and fully exposed with the snow blowing up into uncomfortable places. When they finally figure it out, they are all going to be livid. And when they announce, as they will, that Alan Greenspan has left the building, get ready to hunker down.

What is next? Get ready for a triple punch soon and make your plans accordingly.

Punch one: watch for the markets to slide to new lows this summer and particularly this fall. This will cascade into four linked effects: the dollar will tumble as the Euro will mount a real challenge as the world currency of choice, convincingly displacing the dollar. Gold will soar, approaching $800 to $1000 mark within a year or two. (You heard it here first.) International confidence will begin to fail resulting in loss of significant foreign investments and our international debts could be called in at ever increasing levels. Forget the bond markets (snore). Wait till you witness the inevitable, predictable and powerful political effect of the declining economy in the November elections. The administration’s only hope for survival or even circumventing a massacre at the polls will be leveraging the Greenspan genius and delaying the inevitable market convulsion this fall.

Punch two: the government will have to begin printing money in unprecedented volume by the coming, long hot summer of 2005. A new administration, emboldened by its mandate to “fix the economy” will naively respond to the evolving crisis by reversing the Bush tax cuts and raising them even beyond previous levels. This will only exacerbate the economic dilemma, of course. Eventually, interest rates will spike considerably higher than even on Carter’s watch. Inevitably, jobs will be lost and productivity will spiral down the government’s fiscal toilet as the economy cannot possibly sustain the stress. Perot’s ‘great sucking sound’ will emanate not from our southern border, but from Wall Street itself.

Punch three: As the tax base implodes, as the debt is called in and as the deficit spikes through the stratosphere, somebody somewhere will finally declare the Emperor the pervert that he is. He will then sit on Wall Street in sackcloths and ashes, but it will be way too late. It already is.

One of my Internet heroes, Jim Puplava, has been publicly calling the Emperor a pervert for over a decade. He has mounted an interesting theory that while all this economic insanity is hanging over our heads that it is conceivable that the nation could be hit with an unpredictable event that he calls a Rouge Wave or a “ten sigma event” that would either trigger an uncontrolled economic meltdown or make an ongoing economic disaster even worse. Such an occasion could be a terrorist attack on par with or worse than 911, or an international incident of such magnitude that it would inevitably adversely affect every civilized nation’s economy. Such rogue waves, Jim writes, are totally unpredictable and play on the weaknesses already inherit in the world’s invariably linked financial systems, weakened by historic excesses and apalling debt.

So what do we do now?

Don’t worry, be happy.

Hey – everybody else is! What is going to happen has already been set into motion anyway. We are all seated comfortably and in style on the great fiscal ship Titanic. Night is falling. The air is festive. We are feeling our great and lofty positions as the band plays on and the great ship sails off into history. Why, not even God Himself could sink this greatest economic juggernaut in the history of mankind! Oh by the way, we have just been handed our latest assignment: re-arrange the deck chairs and get ready for tomorrow’s next big boom.

Until then… It’s the depression, moron. Deal with it now or deal with it later. And, oh by the way, if you thought the half-time at the Superbowl was lewd, don’t tune into Moneyline, whatever you do. The Emperor is a mainstay and they don’t just do headshots.

Dennis Chamberland

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